CG Power & Industrial Solutions Ltd. has entered a joint venture with Japan based semiconductor solutions provider Renesas Electronics Corp., and Thailand-based Outsourced Semiconductor Assembly and Test provider- Stars Microelectronics (Thailand) Plc, to build an OSAT facility in India.
The joint venture will set up a manufacturing facility in Sanand, Gujarat, with a capacity to ramp up to 15 million units per day. CG Power will have 92.3% stake in the joint venture; which plans to invest Rs 7600 crore over the next five years.
The stock was trading up 7.21% at Rs 475.20 per share on Friday, compared to 0.82% gain on the Nifty 50 as of 09:59 a.m.
Shares of CG Power & Industrial Solutions Ltd. have surged 10% in the past month and 54.32% in the past year.
Key Levels To Watch
Resistance level: 503.4 (Life high made in November 2023).
Support: 420 (five-week low).
India's Semiconductor Push
The joint venture project was approved by the union cabinet, chaired by Prime Minister Narendra Modi, under India's semiconductor scheme on Feb. 29.
It is one of three semiconductor units approved to be set up at an aggregate investment of approximately Rs 1.26 lakh crore, which are expected to start construction within the next 100 days.
According to Jefferies, India has been recognising the rising importance of electronics and semiconductors. Policies like the $10-billion incentive policy for electronics and related sectors under the PLI scheme and the $10-billion incentive program for chip and display fabrication and testing facilities are bearing fruit, the brokerage said in a Feb. 29 note.
Business Outlook
CG Power & Industrial Solutions Ltd.'s share surge has been driven by growth in its business and future opportunities and capex plans.
In April-December 2023, the company's revenue grew by 15% year-on-year, while net profit rose 26% year-on-year. The growth was led by industrial systems that contributed to 68% of revenues in 9M FY24.
As of Dec. 31, 2023, the company's balance sheet is debt free. The company also has expansion plans for five of its plants, with a set capex of Rs 662 crore. The expansion capex are on track and are expected to be completed between Q4 FY25 to Q4 FY27, depending on the targeted timelines.
Key variables to watch out for over 12-14 months is the underlying power/railways demand, which looks robust currently, with de-stocking impact expected to normalise post elections, Nuvama said in January.
Street View
India Infoline Finance Ltd. and Nuvama are optimistic on the stock, while Kotak Securities Ltd. has a negative outlook.
IIFL maintains a 'buy' rating, with a target price of Rs 519, implying a potential upside of about 10.71% from the current levels.
Nuvama also has a 'buy' stance, with a target price of Rs 520, suggesting an upside of nearly 11%.
Kotak Securities, however, maintains a 'sell' rating at Rs 360, implying a 23% downside.
Of the eight analysts tracking the stock, five maintain a 'buy' and three suggest a 'sell', according to Bloomberg data. The average of 12-month analysts' price targets suggests a downside potential of 2.6%.
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